Marketplace Fairness Act receives mixed reviews

The Marketplace Fairness Act (MFA) would allow states to collect sales taxes from online retailers in the state of purchase when they sell an item to a customer in a different state. The bill passed the U.S. Senate and is heading to the House of Representatives.

According to the United States Conference of Mayors (USCM), cities across America are losing out on billions of dollars in unclaimed sales tax. If passed, the MFA will provide these cities with the authority and ability to collect an equal amount of taxes from online retailers as they do from local retailers. “Passage of this measure would be a victory for basic common sense and bipartisanship and a win for local governments and for businesses everywhere,” said Michael A. Nutter, USCM president and mayor of Philadelphia, Pa., in a press release from USCM.

The burden of the new sales tax will fall on the ‘remote sellers’ as those companies will now be subject to the same sales tax that local retail companies already pay, according to marketplacefairness.org. “This legislation finally levels the playing field by requiring all merchants, whether they sell over the counter on Main Street or over the Internet, to collect the same taxes,” Nutter said in a press release from the USCM.

According to Forbes contributor Kate Harrison, the MFA will initiate a new sales tax on online retailers, but many smaller companies are concerned about the negative economic impact. Harrison notes that the MFA does not apply to companies that collect less than $1 million in annual revenue, but there is concern that companies over that limit will not be able to handle the new tax burden. She also points out that the bill has the potential to stifle economic development as smaller companies and new start-ups will try to remain under the $1 million revenue line.

Terri Alpert, the CEO of two online retail catalogs based in Connecticut, is concerned over the bill’s burden on smaller companies. The MFA is “a way to consolidate sales and power in the hands of the biggest retailers and to crush the little guys with an administrative burden that no small or even medium-size company can handle,” Alpert told Forbes.

However, President of the National League of Cities (NLC) and Mayor of Avondale, Ariz., Marie Lopez Rogers, advocated the positive economic benefits of the bill and its ability to provide equal footing for local retailers against their online competitors. "During these difficult economic times, and with the potential impacts of the looming sequestration, cities will need the Marketplace Fairness Act now more than ever. It will help our cities and towns by allowing them to collect all the taxes that are owed and by providing an efficient mechanism for shoppers to pay their sales taxes.”

The MFA requires that all states adopt or meet a simplified sales tax requirement before a state can apply the bill, according to marketplacefairness.org. Alpert points out that the MFA has positive qualities, but she argues that there should be a few more important restrictions and requirements beyond those currently outlined in the bill. “I’ve made clear to my Congresswoman that my colleagues and I have no objections to collecting sales tax for other states, but it has to be doable and simple enough that we can comply without putting ourselves out of business,” Alpert told Forbes.

The bill is currently working its way through the House of Representatives. “With federal funds to local governments dwindling and few other sources available to municipal leaders for raising revenue, this measure will provide a badly needed funding stream so we can better serve our residents,” Nutter said in a USCM press release.

The MFA will be brought to a vote in the coming months, but Speaker John Boehner told online Capitol Hill news source The Hill that the bill is not a priority for the House. As such, no voting date has been selected at this time.